The legislature's Appropriations Committee had its first chance to react to the governor's proposed budget Thursday, and members expressed skepticism about proposals to keep an energy-generation tax, to grant incentives for natural gas conversion and to drop the motor vehicle tax.

The committee, which will be responsible for developing the spending side of the biennial budget, also had questions about cuts in funding for hospitals, large-scale borrowing and a revision to the statutory spending cap.

Energy-generation tax

Gov. Dannel P. Malloy proposed in his budget, delivered Wednesday, to continue the "temporary" energy-generation tax enacted two years ago, which is set to expire this year. Continuing the levy is estimated to bring in $76 million in each upcoming fiscal year.

"Sitting on the Appropriations Committee, I for one thought we made an agreement to let this tax sunset. Maybe I am wrong," state Rep. Ernest Hewett, D-New London, said. "Did we make an agreement to let it sunset? Because now they are continuing it."

When the tax, which applies to the Millstone Nuclear Power Station in Waterford, operated by Dominion, was enacted, the agreement was for the two-year tax to sunset, state budget director Benjamin Barnes told the committee Thursday afternoon.

"A sunset in my mind is an opportunity for the government and legislature to re-evaluate whether a tax should continue," Barnes said. "We think it should continue."

He said the administration is open to hearing "alternative ways" to get to a balanced budget.

Tax credit for gas

Malloy said he wants to continue his energy strategy by offering a $500 tax credit to people who live near natural gas lines and wish to connect.

"It will drastically improve consumer choice by addressing the expansion of natural gas - where appropriate - in an environmentally sound manner," he said.

State Rep. Whit Betts, R-Bristol, said he is concerned about how much the incentive program would cost.

"Most of the conversion costs are going to be supported by savings and built into people's bills," Barnes said.

The utility companies might pay for some of the natural gas expansion as well, he said.

The total offered in tax credits would be capped at $5 million, Barnes said.

State Department of Energy and Environmental Protection spokesman Dennis Schain said there has been push back from oil suppliers, but that the program doesn't force anyone to switch fuel sources. About 30 percent of homes in the state use natural gas, a much lower percentage than those who use oil, he said. Natural gas costs about half as much as oil, he said.

Vehicle tax

The governor is proposing eliminating the tax on vehicles valued at less than $28,500, saying it would benefit the middle class and the working poor. It would cut taxes for vehicle owners by an estimated $560 million a year, but the move would take that revenue away from local governments. Many municipal leaders have said they may have to raise property taxes to make up for such a cut.

State Rep. Noreen Kokoruda, R-Madison, asked where the real tax relief would be if municipalities have to make up the difference through property taxes.

Individuals and families are still getting tax relief, Barnes said, adding that the burden will go toward "absentee owners of real estate" and commercial entities, he said.

"We think it is fair," he said.

A sales tax cut on clothing also would provide relief for families, he said. Malloy has proposed reinstating an exemption for clothing and footwear costing less than $25, starting on July 1, 2014. The move is estimated to save consumers $55.5 million, according to budget documents. Starting July 1, 2015, the exemption would apply to apparel costing less than $50, which would save consumers an estimated $143.3 million.

Hospitals

Committee members questioned the governor's proposal to cut funding for hospitals as was done in the December 2012 deficit mitigation bill for the current fiscal year. Hospitals would lose more than $548 million over two years, partly on the premise that the costs for uninsured patients would plummet as the Affordable Care Act's health care exchanges begin in 2014.

State Rep. Betsy Ritter, D-Waterford, asked Barnes, "How might this actually work for people in that income bracket who are moving from Medicaid to private insurance on the exchange program?"

Barnes said the administration had incomplete information on how the exchanges would work and would have to get back with her.

"Lacking that info … it's scary," Ritter said.

GAAP conversion

The governor is also proposing to make the state's accounting procedures comply with Generally Accepted Accounting Principles. Under GAAP, revenues and expenditures would be counted when they occur rather than being deferred to another fiscal year. The change also would show the state's budget deficit as larger than it appears under the existing accounting practices.

Barnes said the updated budget deficit under GAAP is just under $1.2 billion for fiscal year 2013.

To deal with the difference between the deficit numbers as they have been reported and as they would be under GAAP, the governor is proposing to borrow $750 million. The remaining $447 million difference would be spread over 15 years, according to the proposal.

State Rep. Arthur O'Neill, R-Southbury, questioned the plan.

"It is always easier to satisfy this year's voters and leave the problem for next year's taxpayers. I think that is going to be kicking the can down the road," he said.

The plan would cost taxpayers about $186 million in interest, Barnes said Wednesday.

j.somers@theday.com